Thursday, September 20, 2012


Here is a weekly chart of the cash S&P 500 going back to the 2007 top.The wavy red line on the chart is the 40 week moving average, a rough-and-ready indicator of the market's long term trend.

As is obvious on this chart the long term trend in stock prices has been upward since the March 2009 low. The advance is getting a bit long in the tooth, having lasted 42 months so far. It is unusual for a bull market to last this long. However one should note that the bull market which followed the 2002 low lasted 60 months while the bull market which followed the 1932 low lasted 56 months. These latter two bull markets started after drops of more than 50% in the market averages had occurred. The 2009 low also marked the low of such a drop and a 56-60 month bull market would carry at least into late 2013.

Mu guess is that the current bull market will not last that long, but I do think it has a good shot of reaching and perhaps exceeding a bit the 2000 top at 1553 and the 2007 top at 1576 (top two red dash lines). It is worth noting that the market began to "flat line" (trade sideways) after its 2000 top and so far has done so for more than 12 years. The last flat line period lasted from 1966 to 1982, a period of 16 years and the one before that from 1929 to 1949, a period of 20 years. Based on these two precedents we can expect another 4-8 years of a stock market which goes essentially no where long term.

During the 1966-1982 flat line period there were five distinct bull market tops in the Dow a little below or a little above the 1000 level. So far during the 2000 - ? flat line period in the S&P there have been two bull market tops in the 1553-1576 zone. My best guess is that the next one will also be in that general vicinity.

The subsequent bear market should prove to be less dramatic than the 2000-2002 and 2007-2009 breaks of more than 50% each. My guess is that it will pull the S&P down about 30% to the 1000 level before it ends.

In the meantime I think the S&P will continue its rally back to the 2000 and 2007 tops which are about 100 points above the market currently. I have drawn two purple boxes which offer a conservative projection for the extent of the rally which started in June of this year. That projection would put the S&P up near it two preceding bull market tops and near the rising green dash trend channel you see drawn near the top of the chart.


mike said...

thanks for the update carl, does that still "fit in" with the doomed house pattern? thanks again

Bill said...

Carl, I kind of disagree with you. I think this bull has legs well into 2014. I believe last year 20% drop should be considered a bear market. I know by definition (it has to exceed 20%) it will not qualify as a bear market, nevertheless Europe, Canada, Australia, Asia all these markets suffered a drop well in excess of 20% in 2011. We can safely say that in 2011 there was a bear market. If we look at it this way the current bull market is only 12 months old, a very young bull indeed.

bmgh said...

I agree with Bill's comment and I also think the 2011 correction was in fact a short and shallow corrective bear market. So this new bull is still young.

On the other hand, assuming there was no bear market and that the bull market that started in Mar. 09 remains intact, this bull market has had many corrections bigger than 7%, including 2 corrections close to the 20% mark; there have not been many bull markets in the history with so many significant corrections, if any. This means this bull has probably more room to run and the comparison with the duration of the average bull is not appropriate in this case.